ESTIMATED TOTAL CRUDE AND CONDENSATE PRODUCTION COSTS,
MAJOR COMPANIES (Lower 48 States)

($/B)

1970 1971 1972 1973 1974 1975 1976 1977 1978

$0.85 $0.90 $1.05 $1.30 $1.50 $1.70 $2.00 $2.25
0.70 0.75 0.80 1.10 1.30 1.35 1.40 1.70
0.85 0.85 0.90 1.50 1.60 1.70 1.90
2.10

Prices, Revenue, and Income. The impact of increasing oil and gas prices after 1973 has been the salient factor in raising the total annual wellhead revenue from $15 billion in 1970 to an estimated $47 billion in 1978 (see tabulation below).

Federal policy has kept domestic oil and gas prices considerably below world levels: The largest increases in domestic crude prices occurred during 1973-75, while the large increases in natural gas prices have taken place since 1975. Since 1975 higher domestic crude prices have increased annual oil production revenues by some $5 billion, while annual gas revenues have risen by $10 billion. During 1978 average domestic crude prices at the wellhead were $8.93/ B, gas. $5.28/BOE, and the composite wellhead value of gas and oil $7.11/B. The average composite value of domestic production is less than half the price of imported crude. With the NGA of 1978 enacted, it appears likely that appreciation in the domestic gas realizations will continue for the next few years. Average gas prices approaching the $1.75 to $2.00/Mcf level ($10.50 to $12.00/BOE) by 1983 seem within expectations. A less certain variable is the future market for natural gas which is heavily dependent (50 percent of sales) on industrial customers who are particularly sensitive to price increases.

With the U.S. crude policy unresolved it is difficult to make accurate projections for domestic oil prices. FEA/DOE policy has permitted marginal price increases in lower tier crude over 1974-78 (see Table 9). During

1974 1975 1976 1977 1978

1974 1975 1976 1977 1978
JAN $5.03 $ 5.05 $ 5.06 $ 5.17 $ 5.28 JAN $9.82 $11.18 $12.89 $13.27 $13.89
FEB 5.03 5.05 5.05 5.18 5.29
9.87 11.32 11.34 13.32 13.90
HAR 5.03 5.06 3.07 3.15 5.34 MAR 9.88 11.52 11.32 13.31 13.97
APR 5.03 5.08 5.07 5.15
5.35 APR 9.88 11.49 11.45 13.28 13.95
MAY 5.03 5.03 5.13 5.18 5.38 MAY 9.88 11.62 11.50 13.26 13.93
JUN 5.03 5.07 5.15 5.16
5.45 JUN 9.95
11.71 11.51 13.28 13.95
JUL 5.03 5.06 5.19 5.16 5.46 JUL 9.95 12.25 11.52 13.31 13.95
AUG 5.03 5.04 5.18 5.18 5.51 ADG
9.98 12.36 11.52 13.93 13.93
SEP 5.03 5.07 5.17 5.20 3.55 SEP 10.10 12.46 13.21 14.01 13.94
OCT 5.03 5.07 5.15 5.23 5.60 OCT 10.74 12.68 13.35 14.01 13.97
NOV 5.03 5.06 5.17 3.24 3.65 NOV 10.90 12.63 13.31 13.98 13.94
11.08 12.89 13.30 13.98 14.08

DEC 5.03 5.07 5.17 5.25 5.68

DEC

1977-78 prices for upper tier crude were reduced in 1976 and 1977 to compensate for initial errors in the FEA/DOE composite pricing system. It was not until 1978 that average upper tier crude prices began to approximate 1975 prices. An analysis of average U.S. crude prices over the 1974-78 period is zisleading because of the decline in lower tier production. Because of the considerable decline in lower tier production (low price), the reduction in overall output, and the relative increase in the share of domestic production represented by upper tier and stripper output, average crude prices fail to provide an accurate indication of economic conditions.

The effect of increasing oil and gas prices on the major domestic producers is illustrated in Tables 10 and 11. It is important to distinguish between the improvement in average realizations per barrel and total revenue generation. In terms of ranking the major producers by average domestic realizations in 1978 qualifications such as the gas/oil ratio to total production and the amount of ANS and California crude output (low wellhead prices) must be taken into account. Companies with greater amounts of oil production (higher value) will have a higher composite wellhead realization than those with a disproportionately high gas output. Allowing for these aberrations the tabulation below ranks the major domestic producers according to their realizations in 1973.

ESTIMATED VARIATION ABOVE (OR BELOW) NATIONAL AVERAGE REALIZATIONS IN 1978

1970 1971 1972 1973 1974 1975 1976 1977 1978